'Election budget without an election'

THE Gillard government has sought to reconnect with voters angry about the carbon tax and the cost of living with a budget that axes planned tax cuts for big business and instead hands out another $5 billion in cost-of-living assistance to low- and middle-income earners.

The rise in cost-of-living outlays takes to $20 billion the total in tax cuts, bonuses and higher payments that low- and middle-income earners will receive during the next four years.

The budget, which the Treasurer, Wayne Swan, described as ''a Labor budget to its bootstraps'', forecasts a $1.5 billion surplus in 2012-13 - from a $44 billion deficit this financial year - and provides funding to kickstart aged-care reforms and a national disability insurance scheme.

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Despite a gloomy global outlook caused by events in Europe, the budget forecasts the economy to grow at a healthy 3.25 per cent next year and stay at trend or above afterwards.

The budget has been delivered with Labor in crisis in the polls, battling twin scandals concerning Craig Thomson and Peter Slipper, and renewed speculation about Julia Gillard's leadership.

Illustration: Cathy Wilcox

With voter and backbench anxiety growing in anticipation of the introduction of the carbon tax on July 1, the budget seeks to calm internal jitters and send a message to voters fretting over the cost of living, that the government is listening.

On top of the $15 billion in tax cuts and payments already promised as direct carbon tax compensation, the budget contained a new $1.1 billion supplementary allowance worth $210 a year for singles, and $350 for couples, who are either on the dole, youth allowance or the parenting payment.

Family tax benefit Part A payments will be boosted by $1.8 billion, which is worth as much as an extra $300 a year for families with one child and $600 for families with two or more children.

As well, an extra $2.1 billion has been dedicated to converting the education tax refund to the ''school kids bonus'' in which low- and middle-income earners will receive $410 a year for each child at primary school and $820 for each high school student.

Depending on their circumstances, families could receive as much as $3450 a year.

''We understand the pressures Australians face, paying for electricity, housing, groceries, petrol or even a simple family outing,'' Mr Swan said, adding that everyone should feel the benefits of the mining boom. ''They don't feel this boom is their boom,'' he said.

The supplementary allowance and the family tax benefit A rises, worth a combined $2.9 billion over four years, will be funded by abolishing the $4.7 billion in company tax cuts that were to be funded by the mining tax.

The Greens and the Coalition opposed the company tax cuts which Mr Swan said would never have passed Parliament anyway.

Big business reacted angrily. In a pointed message to business, Mr Swan said he still supported company tax cuts but business had to help make the case for how such cuts would be funded. Labor received next to no support for the mining tax.

The Opposition Leader, Tony Abbott, who has vowed to abolish the mining tax and every measure it funds, now must say whether the Coalition will abolish $2.9 billion in cost-of-living assistance.

The opposition gave notice of its intention in Parliament yesterday when it stopped the government introducing legislation for the school children's bonus.

A concession to business - allowing loss-making companies to claim up to $300,000 in deductions against previous losses - will cost $700 million and will be funded by the proceeds of the mining tax.

The budget, Mr Swan's fifth, cuts spending by a net $17 billion over four years.

The biggest casualties are Defence, which took a hit of $5.4 billion over four years, and the promised rises in the foreign aid budget which were deferred for a year, saving $2.9 billion over four years.

The government scrapped plans to allow a 50 per cent tax deduction on interest on savings, which saved $900 million, and also plans for a standard annual tax deduction, saving another $2.1 billion.

It deferred for another two years plans to allow people to contribute up to $50,000 to their superannuation at the concessional 15 per cent rate. The cap will stay at $25,000, saving $1.5 billion.

9 May
In a budget designed to address fears of rising living costs, more than 1.5 million families will receive a boost to family tax benefits from July 1 next year with nearly half of them receiving an extra $600 a year.